Voluntary Disclosure Agreements

After nexus determination, state registrations are needed to formally collect and remit sales and use tax, but one question may lead to handling registration in a different manner.

Registration forms require a company to disclose when it began “doing business” in the particular state(s), and if the company has been operating in that state for a long time period, a Sales Tax Voluntary Disclosure Agreement (VDA) may be a better option.

A VDA is a way for companies to avoid fees and criminal charges for unreported taxable income. Companies may innocently overlook income they should have filed, but without the help of a Sales Tax Voluntary Disclosure provider, they can incur serious penalties should the failure to report be discovered.

Voluntary Disclosure Program

Specific rules vary from state to state, but sales tax voluntary disclosure through a VDA is generally a great way to ensure your company is compliant with the IRS.

If you have resisted the sales tax voluntary disclosure program for fear your failure to report may be viewed as criminal, you should be aware that by law, the information you provide as part of a VDA program cannot be used against you — unless you violate the VDA terms.

How the VDA Process Works

A VDA is only for taxes owed but not previously reported. If you already filed a return but simply have not paid some or all of the taxes you owe as per that return, you are still responsible for any late fees or penalties on those taxes.

As companies expand their multi-state footprint, they may have created material exposure due to compounding and unfulfilled tax-filing obligations. To support your compliance objectives, we have a team dedicated to Voluntary Disclosure Agreements. As part of this process, our sales tax voluntary disclosure team performs the following services:

  • Analysis of tax paid and audit status
  • Exposure analysis and tax mitigation guidance
  • VDA negotiation of look-back period (generally 3-4 years)
  • Abatement or reduction in penalties
  • Payment remittance
  • Registration
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Tax Amnesty Program

Occasionally states will offer limited amnesty programs whereby unregistered taxpayers can voluntarily come forward and get registered without repercussion. While not as inclusive as a VDA, it can be a viable and more cost-effective approach, such as abatement of penalties and interest accrued to date.

An amnesty program may not cover all taxes in the state, so if the company plans on filing for just sales and use tax amnesty, it may now be at risk for other taxes. Also, if the company is being audited by the state, it may have no recourse for the assessment and may have no choice but to pay the full amount of the tax.

Many amnesty programs contain provisions that waive any possible claims of refunds or audit assessment protest. Before opting for an amnesty program, the company should evaluate the risk and perform an exposure or compliance review to dictate the best plan of action.

Our team will analyze the business activities in question and work with the taxpayer to identify and mitigate potential exposure, and assist in making the right decision: state registration, VDA or amnesty (if applicable). Tax compliance starts with being registered in the states where you do business, so it is a necessity to properly define nexus and decide the right path. TaxMatrix can ensure your company is compliant with the state(s) and has a go-forward roadmap to fulfill future filing obligations.

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